Interesting Telegraph (London) article regarding a decision by News Corp. (NWS) to consider pulling out of Russia after learning that the offices of its outdoor advertising firm were raided. As stated by Rupert Murdock,

"The more I read about investments in Russia, the less I like the feel of it. The more successful we'd be, the more vulnerable we'd be to have it stolen."

As Russia continues to generate crude oil revenues, capital available for investment will grow, as will interest in investment opportunities. Yet, experiences such as the one encountered by News Corp, along with recent confrontations with Georgia, will certainly cause some to questions the risk-reward of any such investments. As more companies consider managing risk, including political risk, the BRIC may start to become the BIC. Regardless of opportunities, companies are nervous about taking on any unnecessary risk. The News Corp decision may be just the beginning, with more countries than Russia being affected.

Deal Journal over at the WSJ explores the valuation of various possible Microsoft, Yahoo!, News Corp, Google, AOL partnerships. Adding Google in the exercise is probably purely academic given that anti-trust regulations would preclude any potential Google-Yahoo alliance. Sanford C. Bernstein figures that a Yahoo-AOL-Google structure would increase the valuation of Yahoo! to $37.01 per share, after adding more than $550 million in earnings EBITA. Interestingly, the combined Yahoo!-AOL deal would be closer to $31.27 per share - with AOL on Google's platform - slightly north of the original offer from Microsoft. Of concern for current Yahoo! shareholders is that the terms of the AOL deal call for Yahoo! to buy back shares somewhere in the $30-40 per share range. Even with the $31 a share purchase price, the AOL dance may end up costing existing shareholders when, and if, any deal is made in the lower $30s.

Tickers: MSFT, YHOO, GOOG, TWX, NWS

As the MSFT-YHOO saga continues, it appears that more of the "strategy" is beginning to unfold. As we have discussed in other posts, the various players being talked about (News Corp, Google, Time Warner - AOL) could end up being components of any deal, but that may be secondary to the discussion. What each provides is leverage. In essence, Yahoo! wants a higher bid, but Microsoft does not want to bid against itself. Enter the new players. Without even making a real bid for Yahoo!, they give this appearance, or at least the illusion, of more value, allowing Microsoft to raise the stakes. Given recent developments, I would not be surprised to see Microsoft offer $33-35 a share, allowing everyone to be happy, go home, and avoid any more confusing partnerships - some of which may actually destroy value. The fact still remains that Microsoft needs Yahoo!, and Ballmer needs a win - all toes are too deep in the water already. The additional discussions have also given Jerry Yang the time to realize that his baby has grown up and is probably going off to college in Seattle. Always painful, but part of the process.

As was pointed out by a Bull Bear Trader reader, Google will probably be the winner in all of this. Notice that they really did not offer much, just enough to keep things interesting and honest, and more importantly, messy. I am sure they prefer two weaker search engines as competition, instead of one stronger one, but it may not matter in the end. As mention in the WSJ: "Google handily won the last phase of online competition focused on the small text ads tied to Web searches. Those ads account for roughly 40% of the U.S. online ad market." So successful is the search advertising, that even Yahoo! is farming out tasks to Google's AdSense.

Of interest in the WSJ article is how Google and its competitors are moving to display advertising, such as banner and video ads. Currently, these types of ads only account for about 30% of U.S. advertising dollars on the Internet. As viewers move from TV to the Internet, more advertising is also being placed on video sites, and sites for women's issues. Google dominates search advertising, but display advertising is still being fought over. Google's YouTube purchase, and Yahoo! recently introduced site Shine (see other posts, or http://shine.yahoo.com/), are well positioned. This is where a combined Microsoft, Yahoo!, and potential News Corp. agreement is critical. It could also allow News Corp. the opportunity to further leverage advertising at MySpace, beyond previous agreements with Google. Better opportunities (i.e. better profits) may be available, but integration will be challenging. Previous talks with partners have failed, and as mention, News Corp. may just be a secondary player in the current discussions.

Tickers: MSFT, YHOO, GOOG, TWX, NWS

It is amazing how fast things develop when it gets personal. The latest news from the WSJ reports that Yahoo! and Time Warner's AOL (which they may like to give away cheap, just to get it off the books and out of their memories) are close to a deal to combine Internet operations. Of course, Microsoft is developing its own battle plan, hooking up with News Corporation in an effort to possibly mount a joint bid for Yahoo! and its new partners - Google, AOL, .... and everyone else who hates MSFT. An interesting statement in the article is that "Microsoft and News Corp. have yet to reach an agreement on joining forces but one person apprised of the plan described the discussions as serious." Now why would the WSJ have the inside track on a possible MSFT / News Corp deal? Hmmmm.

Of interest is how AOL (aka Time Warner) would purchase shares of Yahoo! at a price above the Microsoft offering price. Essentially, AOL and some cash would come Yahoo!'s way. The deal would not include AOL's dial-up access business , and would value AOL at $10 billion (do they still have a viable dial-up business, and does anyone except the AOL dial-up or broadband folks go to the site?). Yahoo! would use the cash to buy back stock in the $30 to $40 range.

The question that gets lost in all this is whether all these partnerships are actually good for Yahoo! shareholders, or even Microsoft for that matter? Will the combined partnerships be worth more than $31 a share? Some analysts are already skeptical. Looking at the new proposed partnerships, Yahoo! seems to be getting the short end of the stick. AOL brings less to the table, other than a declining business, albeit a still significant number of eyeballs (still 4th overall with 109 million visits in February - although every time someone logs on the Internet - with either their AOL dial-up or broadband - they hit the site, even if they don't intend to, or plan to stay around). News Corp, on the other hand, brings an increasing social network to the plate with MySpace and their growing media presence.

At first blush it looks like Yahoo! is strategically placing itself in a position to command a higher bid, while Microsoft is setting up an alliance that will allow it to offer a higher bid. With a new partnership with AOL, Microsoft can rationalize a higher bid, and still save face (at least a little). In the end, everyone may realize that the $31 per share was a good price, and certainly less complicated for valuing the deal.

Tickers: MSFT, YHOO, GOOG, TWX, NWS